Spurious Correlation

DEFINITION of 'Spurious Correlation'

A false presumption that two variables are correlated when in reality they are not. Spurious correlation is often a result of a third factor that is not apparent at the time of examination. Spurious comes from the Latin word spurious, which means illegitimate or false.

BREAKING DOWN 'Spurious Correlation'

According to the skirt length theory, many people believe that short skirts are used to predict that the markets are going up. And if skirt lengths are long, that it means the markets are going down. Some would argue that this is a spurious correlation and that each event occurs because of a random third variable such as warmer-than-expected weather or income levels.

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RELATED FAQS
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  3. How do I calculate correlation between market indicators and specific stocks?

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